Volcker Rule Could 'Disarm' US Banks: Nichols

The Volcker rule, a regulatory proposal that has been considered as part of the financial reform legislation, could be “unilaterally disarming” to the growth of US financial institutions because it would put them at a competitive disadvantage, the head of the Financial Services Forum told CNBC Thursday.

Government Regulation

Europe will not be enacting similar regulations, said Rob Nichols, President and COO of the Forum, which is a financial and economic policy organization associated with some of the leading U.S. investment banks.

“We’ve had early indications that the euro zone is not going to have a complementary public policy outcome,” added Nichols.

The Volcker rule—which is named for Paul Volcker, the chairman of Obama's Economic Recovery Advisory Board—would ban banks from engaging in certain kinds of investments unless they favor their customers.

President Barack Obama previously wanted this proposal included in the financial reform bill, but it is not unclear whether the final bill will include this provision as Republicans have indicated they favor a narrower compromise law. The bill may be debated in the Senate next week.

Taking away the speculative trading from the larger institutions would actually increase the risk to investors, Nichols said, because the firms that pick up the activities would be less equipped to handle the transactions.

Nichols supports the mechanisms to break up failing institutions and systemic supervision by the Fed, which are included in the bill, calling them “critically important.” He also added that the financial services industry has been “pro reform” for the last two years.